Hope you enjoy this chat about private equity on the RT show Boom/Bust from Friday. We were on for two segments, with the conversation focusing on abusive practices by private equity landlords and their economic model (such as it is) for that business. We continued with a discussion of the conditions facing private equity firms in their traditional business of buying and selling companies, and the recent, remarkable SEC discussion about the high level of lawbreaking and serious compliance failure they are finding in regulatory exams. If you want to skip past the discussion of Deutsche Bank’s Las Vegas misadventures, our segment starts at around 3:45.
BTW the folks in the New York remote studio went to some trouble to warm up the coloration of the lights, but I find in a lot of remote studios that the lighting somehow flattens the speaker’s face and unwittingly emphasizes the “talking head” quality of business TV. Maybe that serves as a sort of genre marker.
Due to time constraints, I could only discuss how the crisis and its aftermath has made the traditional private equity business more challenging than it has been for quite some time in passing. Lambert pointed out a Bloomberg article on Friday that provided additional detail. Key extracts:
If you can’t buy whole companies then buy bits and pieces of them. That’s the logic propelling private-equity firms this year as they gobble up divisions shed by their parent.
These so-called carve-outs are giving private-equity firms something to buy and clean up, at a time when leveraged buyouts of entire companies have all but stopped, as U.S. stock indexes reach records….
Private-equity transactions overall have fallen 22 percent to $53 billion through April, data compiled by Bloomberg show, led by the drop in buyouts of public companies. The value of those leveraged buyouts declined to $3.2 billion compared with an average of $34 billion in the 10 years through 2013.
The peak for buyouts came before the financial crisis, when U.S. funds struck $659 billion of deals from 2005 through 2007, including the purchases of HCA Inc., Hilton Worldwide Inc. and Biomet Inc., the data show. Buying inexpensive public companies was generally easier for the funds than carve-outs are, said Raymond Lin, a mergers and acquisitions attorney at Latham & Watkins LLP.
“The easy days for private-equity buyers are over when they profited from buying undervalued companies,” he said. “Carve-out deals require a lot of up-front work that would incur additional costs and could affect returns.”